Airing dirty financial laundry

Marketing of bank, insurance and pension brands could be in for a radical shake-up under plans unveiled last week by regulator the Financial Services Authority. The FSA proposes to publish – for the first time – detailed information on customers’ complaints about the companies it regulates (MW last week).

If the proposals go ahead, the UK’s top financial brands could face a major jolt to their public images in early 2009, when the first data is published.

Under the plans, the FSA will list the number of complaints received by each of the top 125 financial brands and the percentage of these each company upholds. Other information will include the compensation paid to customers and how long it took to resolve the problem.

When this data hits the press, brands with the greatest proportion of complaints could find themselves the target of considerable criticism. Equally, the best performers will have something to crow about.

However, the FSA stresses that the proposals are still at the discussion stage and its document Transparency In Regulation goes into great detail about the drawbacks of naming and shaming companies.

The FSA says it is legally prohibited from listing the brands in a league of best to worst, but sources believe the media could rank the financial brands according to the number of complaints they receive per thousand customers. Whether the tables amount to “naming and shaming” or not, the plans are noteworthy for indicating that the FSA wishes to be seen as more transparent in its dealings with consumers. The watchdog has faced condemnation from consumer groups and politicians for its ineptitude in monitoring collapsed bank Northern Rock and for a general “culture of secrecy” when it comes to dealing with the public. Last week’s proposals to increase its transparency are seen by some as an attempt by the FSA to turn around its image.

Yet, simply publishing complaints lists does not go far enough for some critics. Consumer group Which? says the FSA’s lack of transparency has stopped it from working in the interests of consumers. While welcoming the latest proposals, it wants the regulator to go much further. Dominic Lindley, principal policy advisor, says: “For too long the FSA has been a passive bystander while companies continue to mislead and let people down. Naming and shaming is a powerful way to improve the industry. Only by being open will the FSA become a more effective regulator.”

He calls for the FSA to divulge the results of its “mystery shopping” exercises. And he says the regulator should identify companies that put out misleading ads.

However, the FSA says it is expressly forbidden from naming and shaming companies by the Financial Services Marketing Act 2000. As its discussion document on transparency published last week points out: “Significant procedural safeguards were built into the FSM Act in order to prevent the casual, rash or unchallenged use by the regulator of public statements that could damage a financial services firm’s reputation and commercial standing.” The FSA would enter a legal minefield by naming and shaming. One way round this could be through “naming and faming” the best performing brands.

Importantly, though, campaigns by Which? and the National Consumer Council for greater information about financial brands’ performance seem to have struck a chord with the FSA. Even publishing limited data on complaints appears to be a step towards opening up brands to public scrutiny. Then again, one source warns: “It depends how they publicise it – it could be hidden on page 1,000 of a report or in some remote corner of a little known website.”

Even so, the regulator is under pressure to demonstrate that it is not just another toothless watchdog. The FSA needs to slough off perceptions that it is part of a cosy club of highly-paid bankers dedicated to protecting the industry’s interests at the expense of the public.

Last week the body appointed Adair Turner, former chief of the Confederation of British Industry, as part-time chairman for a five-year period to replace Sir Callum McCarthy. The appointment was welcomed by Which?, which says: “He could be just the man to make financial services work for ordinary people.” Lord Turner’s job will be to re-establish the FSA’s credibility and that of the City.

Part of his task alongside chief executive Hector Sants will be to persuade consumers that somebody is on their side in their dealings with banks and insurers. With thousands of account holders taking action against banks over excessive charges and repeated mis-selling scandals particularly on payment protection insurance, consumer trust in financial brands is at a low ebb.

Some believe publication of complaints tables could trigger a massive shift in the way banks and insurers treat customers, given the experience of the utility sector. Utility users’ watchdog Energywatch claims that its league tables on customer service and complaint handling by electricity and gas firms have had a marked effect on the behaviour of the companies mentioned.

A spokesman says that Scottish & Southern Energy now tops its customer service tables after languishing at the bottom for a number of years. The company has made its strong showing in the Energywatch league a key indicator of its performance.

An Energywatch spokesman says: “They have been the best for a couple of years after being the worst. We named and shamed them, they got the message and now it’s a badge of pride rather than a mark of shame for them to be in our tables.” S&S refused to comment.

Marketers broadly agree that the FSA should publish its adjudications about misleading advertising in the same way that the Advertising Standards Authority does. However, some are concerned that the complaints tables could damage the relationship brands have with the FSA.

Patrick Muir, marketing director of Octopus Investments, who previously headed marketing at Egg and Goldfish, is wary about naming and shaming brands. He believes the FSA’s strength lies in its ability to build close relationships
with financial companies. They, in turn, trust the regulator and are prepared to divulge
sensitive information about their operations. “Publication of league tables and naming and shaming companies might get in the way of those more collaborative relationships. The FSA mustn’t become a remote judgmental organisation,” he says.

Virgin Money takes a similar stance. “I’m not too sure whether naming and shaming is the right thing to do,” says a spokesman. Other brand owners refuse to comment. For instance, Halifax Bank of Scotland, the UK’s biggest mortgage lender, claims it has no views on the matter and refers calls to the British Bankers’ Association. The BBA says it has yet to decide on a response to the FSA’s proposals.

With Adair Turner at the helm and a new focus on transparency, consumer groups hope that this will be the start of a new, consumer-friendly era for the FSA. But it it still a long way from boosting its low profile among the public and providing them with the hard information they need to decide between brands.

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